Thursday, September 26, 2013

An economic depression affects everyone. During the Panic of
1857, the Post World-War I Crisis, the Wall Street Crash of 1929, the Great
Recession of 2008-2009 or even the "Greek Crisis", the basic mechanisms of
consumer attitudes were similar. Both the value perceived by consumers and
shareholder value were heavily influenced by brand. Brand can drive growth in
an up market or protect the company’s value in a down market. But, what really
happens we enter a recession phase and what are the impacts? Actually:

• Investors become very risk-averse. They are quick to
criticize companies’ performance, resulting in decreasing share prices.

• The labor market is easily depressed causing employees to
regard the organizations they work for with a more critical eye.

• Falling consumer confidence leads to heralding either
lower prices or sales, but in either case falling profits.

Just steal

Brand development reaches far beyond traditional forms of
consumer advertising. However, most still confuse the discipline of branding
with ad communications. This interpretation ignores that:

• Brands are strategic assets rather than purely symbolic
tools.

• Effective branding is a matter of profit, not just market
share.

• Competitive advantage branding is a matter of sustainable
investment rather than cost.

During a recession, brands that focus on value, rather than
price, can reassure consumers with greater confidence. The moral support that
is provided by brands during a recession helps to rebuild that enduring bond
between brand and former consumer. As consumers begin evaluating their purchases
on a different set of priorities, heritage brands can use the emotional
connections that already exist to regain past consumers that have moved on to
“higher end” brands. A recession can unlock the relevance trapped within the
brands of people’s youth.

The necessity for a clear brand proposition is more
important than ever as consumers recognize the need for new ways to work within
their shrinking budgets. The companies who recognize and seize the opportunity
to steal market share while others are in shutdown mode, will find the benefits
far outweigh the costs.

The Buy Down Effect

A comScore survey revealed that one in five shoppers
converted to less expensive, generally private label brands to save money. The
figures below show the change by market segment after the end of the Great
Recession of 2008-2009.
Housewares realized no net shift for buying less expensive brands, but a
prominent 6 point gain in buying other brands on sale. It is possible that in
the case of durables consumers are more hesitant to try a cheaper brand but are
still looking to save money by buying premium brands when they are on sale.

comScore, SymphonyIRI

Losing money to other brands?

Invest in your brand. Decisions should be
focused on spending wisely, but too often companies do nothing at all. A
company’s typical reaction to a slowing economy is to cut back and wait things
out. Ironically, those companies end up damaging their most valuable
assets—their brands. Actually, research concerning economic depressions reveals
some interesting findings:

• 2.5 times increase in market share vs average of all
businesses in post-recession period for those who aggressively increased media
expenditures during last recession (CARR Report)

• 256 percent relative sales growth for businesses which
maintained or increased media spend over those who did not (McGraw-Hill
research analysis)

In times of recession it is better to tighten the belt and
cut marketing and branding expenditures. However, when companies cut their
outreach, they also begin to cut the ties that bond consumers to those brands.
For smart companies, opportunity beckons. As we see competitors cutting back, we
must now recognize that is the time to strike. If funds are too tight to make
an all-out attack,we should just cut less than the competitors. Remember, in a
recession both our marketing money and our message go further.

Consumers and Cost Control

Recessions usually trap brands between low priced
competition and rising raw material costs.
Faced with narrowing margins, such brands may consider raising their
unit prices, reducing the quantity or size of the product, or reducing the
quality of the ingredients used.
Consumers-respondents in the aforementioned survey by comScore were
asked to choose between these three options.
Specifically, they were asked, "Which action would you most want
your preferred brand within each category to take, if it had to take a cost
controlling action?"

Consumers prefer, if necessary

Consumers indicate a preference for quantity reduction
vs the other stated alternatives.However, this strategy is not without risk. One additional question in
the survey explored the reported effect that this downsizing of products had on
consumers‘ buying behavior.Four out of
five respondents indicated they had noticed product downsizing in the
categories they regularly shop. Perhaps more concerning, more than half of the
respondents reported occasionally changing their behavior.Thus, while consumers claim to prefer product
downsizing, it does appear to have at least an occasional effect on brand
choice for many shoppers and should be approached with caution.

Conclusion

Finally, brands can win economic depressions by successfully
differentiating their product versus lower priced competitors in order to
maintain preference and reduce price sensitivity of consumers. Decades of
research on advertising have demonstrated that the use of brand differentiating
messages is highly effective at increasing preference for the brand. Therefore, to optimize the impact of
continued marketing support during hard economic times, advertisers need to make
sure their efforts are effective at differentiating the brand from the
competition. Yes, i know, Porter is always right!